In the enforceable subordening agreement, a subordinate party undertakes to subordinate its interest to the interest of the guarantee of another subsequent instrument. Such an agreement can be difficult to implement afterwards, as it is only a promise to reach an agreement in the future. Debt subordination is not uncommon when borrowers are working on financing and entering into credit agreements. Subordination agreements are often executed when a homeowner refinances the first mortgage. The refinancing terminates the loan and drafts a new one. These events occur at the same time. As soon as the bank terminates the primary mortgage, the second mortgage enters the senior position and, therefore, the refinanced primary loan ranks behind the second mortgage. Primary mortgage holders wish to retain their first-position rights in a forced sale and will not allow refinancing unless the second borrower signs a subsecation agreement. However, the second lender does not need to make his loan subordinated. If the value of the property decreases or if the refinanced loan is higher than the previous loan, the second lender may refuse the sub-credit. As a result, homeowners may have difficulty refinancing the mortgage. In addition, the interest rates of both-thythetes are generally higher because of the risk they entail.

Subordination agreements are the most common in the mortgage industry. If a person borrows a second mortgage, that second mortgage has less priority than the first mortgage, but these priorities can be disrupted by refinancing the original loan. A subordination agreement recognizes that one party`s claim or interest is greater than that of another party if the borrower`s assets must be liquidated to repay the debt. The Mortgagor essentially repays it and gets a new loan when a first mortgage is refinanced, which now puts the most recent new loan in second place. The second existing loan increases to become the first loan. Subordinated debt sometimes receives little or no repayment when borrowers do not have sufficient resources to repay the debt. . . .